Our regulatory approach
The AFSA Compliance and Enforcement Policy (this Policy) assists participants in the personal insolvency and personal property securities systems to understand how we encourage and enforce compliance with the legislation AFSA administers.
We adopt a harms-based approach to regulation, using our regulatory tools for the purpose of correcting non-compliance and preventing and reducing actual and potential harms to:
- participants in the personal insolvency and personal property securities systems
- AFSA
- the public.
Harms can be financial or non-financial, including harm to individuals' health and safety, harm which exacerbates individuals' vulnerability, and harm to the integrity of Australia's credit system.
Vulnerability is an important consideration in our harms-based regulatory approach. AFSA considers a person experiencing vulnerability as someone whose situation or circumstances could leave them open to harm, exploitation, or other detriment, if they don't receive the right information or support to understand their options, to engage with AFSA or to meet their obligations.
Supporting documents
Our Regulatory Strategy 2023–27, annual Regulatory Action Statement and this Policy support AFSA's approach to regulation.
Our Regulatory Strategy 2023–27 explains our:
- regulatory principles
- key stakeholders
- enduring regulatory priorities of system vulnerability, system efficiency and system misuse
- bell-curve model (Figure 1).
Our compliance and enforcement activities are focused on conduct that causes harm. Most harms that undermine an effective credit system occur in the outer edges of the bell curve, where people either experience barriers or circumstances that require increased support, or deliberately misuse the system.
Our annual Regulatory Action Statement outlines where we will focus our resources to address our enduring regulatory priorities, and to prevent and remedy areas of significant harm.
Our legal framework
We administer, and encourage and enforce compliance with, the following legislation:
- Bankruptcy Act 1966 (Bankruptcy Act)
- Personal Property Securities Act 2009 (PPS Act)
- Insolvency Practice Rules (Bankruptcy) 2016
- associated regulations, enabling legislation and standards.
Statutory roles
AFSA fulfils statutory roles created by the Bankruptcy Act and the PPS Act, including the following roles which exercise compliance and enforcement functions:
- The Inspector-General in Bankruptcy, which has broad powers to regulate registered trustees, the Official Trustee and registered debt agreement administrators, including investigating the conduct of practitioners and allegations of non-compliance with the Bankruptcy Act.
- The Official Receiver, which oversees the bankruptcy process from initial assessment to discharge and supports the efficient management of a debtor's estate by a registered trustee, the Official Trustee or a registered debt agreement administrator.
- The Registrar of Personal Property Securities, which maintains, and has powers to take action for misuse of, the PPSR.
In this Policy, we refer to the statutory roles listed above where those statutory roles have specific regulatory tools available to them under AFSA legislation. Where regulatory tools are available to all statutory roles, we refer to AFSA generally.
Practitioner conduct
Given their trusted roles in the personal insolvency system, registered trustees and registered debt agreement administrators are expected to maintain the utmost professionalism, independence, impartiality, honesty and ethics in all their dealings.
The Inspector-General in Bankruptcy enforces requirements for each registered trustee and registered debt agreement administrator to, among other requirements, demonstrate they are a fit and proper person to gain and maintain registration.
Our website provides information about factors AFSA may have regard to when determining a person's fitness and propriety, including whether they have met fiduciary duties and professional standards.
Making harms-based decisions
Harms-based factors
When deciding which compliance and enforcement actions to take, we consider the following factors:
- the conduct or harm falls within the scope of AFSA's purpose and responsibilities
- the conduct or harm falls within our current Regulatory Action Statement
- the conduct or harm is of significant public interest
- the conduct caused, or may cause, serious harm to an individual, business or group
- the conduct represents widespread or systemic compliance issues
- the conduct disproportionately targets an individual or group experiencing vulnerability
- the conduct represents significant new or emerging issues, areas of law or regulatory action
- the conduct is fraudulent, intentional or reckless, or the individual or business involved in the conduct is dishonest or has a history of disregard for compliance with AFSA legislation and standards
- the conduct is sustained or is likely to be continued or repeated (including by others) or forms part of a pattern of conduct
- any other factors specific to the matter which indicate AFSA intervention is warranted.
We cannot pursue all matters that come to our attention. We may not pursue matters that we consider are:
- one-off, isolated events with low level harm
- more appropriately resolved between the parties
- lacking in merit and intended to harass or cause undue distress
- better considered by another regulator due to their expertise or jurisdiction.
Information gathering
To assist our understanding of the nature and scope of non-compliance and associated harms, we gather information using a variety of methods, including using coercive information gathering powers and show cause notices. In certain circumstances, we can share information and documents we hold with other agencies.
Coercive information gathering powers
Our coercive information gathering powers include the following:
- The Inspector-General in Bankruptcy has the power to:
- require a person or business to provide information and documents, such as production of books and records
- require a person to attend an oral examination
- investigate the books of the Official Trustee, a registered trustee or a registered debt agreement administrator.
- The Official Receiver has the power to:
- direct the production of books or information
- require a person to attend an oral examination
- access premises and recover property.
- The Registrar of Personal Property Securities has the power to require a person or business to provide information relevant to an investigation into alleged non-compliance with the PPS Act.
In certain circumstances, refusal or failure to comply with a requirement to provide information is a criminal offence which may attract fines or imprisonment.
Further, if it is a trustee who does not comply with a direction to provide information, we may restrict them from taking new appointments for a specified time or apply to the Court for a direction requiring the trustee to comply.
Show cause notices
Where the Inspector-General in Bankruptcy holds concerns about the conduct of a registered trustee or registered debt agreement administrator, the Inspector-General in Bankruptcy may issue a show cause notice requiring the practitioner to explain why they should continue to be registered.
Further, the Registrar of Personal Property Securities may issue a show cause notice requiring a person or business to demonstrate a valid security interest in items listed on the PPSR.
If the recipient does not respond or does not respond satisfactorily, the Inspector-General in Bankruptcy or the Registrar of Personal Property Securities can place restrictions on the person's participation in the personal insolvency or personal property securities systems.
Our regulatory tools
We use a range of regulatory tools to encourage and enforce compliance with our legislation. In deciding which regulatory tool (or combination of regulatory tools) to use, we consider the circumstances in which the conduct and harm occurred, and the most effective way to prevent and remedy harm and ensure future compliance.
The Compliance and Enforcement Pyramid in Figure 2 indicates the escalation of the compliance and enforcement response depending on the nature and seriousness of the harm arising from the conduct.
How we achieve compliance
Supported compliance
We support participants in the personal insolvency and personal property securities systems to understand their rights and responsibilities and to prevent harm through proactive compliance with AFSA legislation.
We support voluntary compliance through activities such as publishing guidance documents and case studies, conducting education campaigns, and engaging closely with individuals, industry and key stakeholders such as financial counsellors.
We also promote voluntary compliance by continually improving the systems and processes we provide to participants in the personal insolvency and personal property securities systems, including applying people-centred design to reduce administrative burden and ensure accessibility.
Guided compliance
Where we suspect non-compliance, we may issue a written warning (also referred to as a 'caution' or 'official caution') to participants in the personal insolvency and personal property securities systems putting them on notice of their obligations.
If we obtain evidence of continued or additional non-compliance following a written warning, we may use stronger regulatory tools to address our concerns in future.
We may issue a public warning to alert participants in the personal insolvency and personal property securities systems of alleged non-compliance with AFSA legislation, particularly where a public warning may prevent widespread harm or encourage widespread compliance.
The Inspector-General in Bankruptcy may issue infringement notices to a person or business for certain offences under the Bankruptcy Act.
An infringement notice requires the recipient to pay a financial penalty, which is applied instead of referring the matter to the Commonwealth Director of Public Prosecutions for criminal prosecution.
The Registrar of Personal Property Securities can accept court enforceable undertakings for alleged non-compliance with certain sections of the PPS Act.
A court enforceable undertaking will generally place obligations on the individual or business engaging in the conduct to remedy harm and implement processes to ensure future compliance.
Where the Inspector-General in Bankruptcy holds concerns about the conduct or management of administrations by a registered trustee or registered debt agreement administrator, the Inspector-General in Bankruptcy can seek disciplinary sanctions.
Sanctions can include imposing conditions on or suspending registration of registered trustees and registered debt agreement administrators.
Where the Registrar of Personal Property Securities considers an individual's or business' use of the PPSR is not compliant with the PPS Act, the Registrar may remove registrations on, and restrict individuals' ability to automatically create registrations on, the PPSR.
Enforced compliance
The Inspector-General in Bankruptcy and Registrar of Personal Property Securities may commence civil court proceedings to address non-compliance with AFSA legislation.
Courts have discretion to make a variety of orders in civil proceedings, including imposing pecuniary penalties, imposing injunctions and making orders for restitution.
We may refer criminal offending under the Bankruptcy Act or Criminal Code to the Commonwealth Director of Public Prosecutions.
The Commonwealth Director of Public Prosecutions determines whether the evidence is sufficient to commence criminal proceedings and whether prosecution is in the public interest. Some offences carry a maximum penalty of a term of imprisonment and/or significant fines.
Given their trusted roles in the personal insolvency system, registered trustees and registered debt agreement administrators are expected to maintain the utmost professionalism, independence, impartiality, honesty and ethics in all their dealings.
In appropriate cases, the Inspector-General in Bankruptcy will seek to cancel the registration of a registered trustee or registered debt agreement administrator, including through a disciplinary committee or by application to the Court.